Linked stock exchanges will be vital for the Asean community

If we look at the Thai economy over the past decade, we can see the clear trend that Thailand has been tilting ever closer to its own region, specifically Asean.

The region has been Thailand’s major trading partner, with over 18 per cent of the country’s total export value. I would have to say that there is now a renewed sense of urgency that Asean must further cooperate and integrate in order to reduce our own exposure to the world’s developed economies, especially the struggling European and US economies.

Natural market forces are also a major catalyst, as consumer demand in nearby countries such as China and Indonesia is on the rise. The regional focus comes from a top-down effort as well, however, primarily through the economic integration programs of the Asean.

As everyone knows by now, we will be entering into the Asean Economic Community (AEC) in 2015. Under the AEC Blueprint, there are four pillars for economic integration to be achieved, namely: a single market and production base; a competitive economic region; equitable economic development; and integration into the global economy.

To enhance economic linkages in the region, I personally think that a major step in 2012 onwards will be the beginning of capital-markets linkages, as stock markets in Malaysia, Thailand and Singapore will be linked, allowing brokers direct access to trading in certain stocks on other participating bourses.

Other reforms to follow include increased banking integration in 2013 and the Asean Economic Community in 2015. Full liberalisation of banking, which Asean leaders acknowledge is a strategic economic sector, therefore means a slower pace will be required. This will eventually come in 2020, although the Bank of Thailand is looking at perhaps bringing this timeline forward.

Despite concerns common to sovereign countries about surrendering control to a supranational bloc, and the missed or pushed-back deadlines for some of these reforms, the argument for economic integration remains a powerful one in the eyes of many leaders and economists. In particular, for a region with a recent history of conservative banking regulators and the fear of capital flight – caused by the memories of the 1997 Asian financial crisis – integration could lead to a more stable system and a lower cost of finance.

Also, I think that more regional integration would afford countries a wider range of instruments and financial assets to obtain insurance against shocks and risk management opportunities. The Asean-listed stocks will further this goal by allowing trades via an electronic platform, meaning that in participating countries, brokers can directly access stocks on the bourses of others, removing the need to go through a local broker. That means a reduction in fees for investors, and therefore for listed companies a larger pool of potential shareholders.

I believe that the first links will be established between Malaysia, Thailand and Singapore in 2012, and then add stocks from bourses in Vietnam, Indonesia and the Philippines. Eventually, greater integration could help Asean countries gain the attention of international investors. Separately, these smaller countries attract less attention because of their size than Japan, which has the world’s third-largest economy, and the populous giants India and China.

The technological underpinning of the Asean-listed stock exchange is a system called the Asean Common Exchange gateway. Brokers in one country will place an order on their home exchange, and the trade will be executed in the other country, which will be executed as a service by a broker there.

Looking ahead, the next step toward financial integration will come in 2013, with the concept of Asean Qualified Banks. While the rules were still under discussion as of early 2012, the idea is that banks that meet certain standards will be able to operate in any Asean member state. Fuller details are expected to become available later this year, but this is a case of government trailing the private sector, as many of the region’s large banks have already expanded to other Asean countries: CIMB Group and Maybank of Malaysia, Singapore’s United Overseas Bank, and Thailand’s Bangkok Bank are just a few examples. Although the standards have not been set, there is speculation that just a few banks in Asean will meet the potential criteria.

The big change in 2015 will be the implementation of the Asean Economic Community, which will represent a leap towards full economic integration, with some exceptions such as banking. According to the AEC Blueprint, that will require the free flow of goods, services, investment, capital and skilled labour – basically the four pillars of economic integration under the AEC.

I reckon that in the years ahead, the AEC will transform the Southeast Asian region into a single market and production base. Thai people and businesses now need to look beyond our own domestic market and see the broader Asean market with over 580 million consumers.

The region has been Thailand’s major trading partner, with over 18 per cent of the country’s total export value. I would have to say that there is now a renewed sense of urgency that Asean must further cooperate and integrate in order to reduce our own exposure to the world’s developed economies, especially the struggling European and US economies.

Natural market forces are also a major catalyst, as consumer demand in nearby countries such as China and Indonesia is on the rise. The regional focus comes from a top-down effort as well, however, primarily through the economic integration programs of the Asean.

As everyone knows by now, we will be entering into the Asean Economic Community (AEC) in 2015. Under the AEC Blueprint, there are four pillars for economic integration to be achieved, namely: a single market and production base; a competitive economic region; equitable economic development; and integration into the global economy.

To enhance economic linkages in the region, I personally think that a major step in 2012 onwards will be the beginning of capital-markets linkages, as stock markets in Malaysia, Thailand and Singapore will be linked, allowing brokers direct access to trading in certain stocks on other participating bourses.

Other reforms to follow include increased banking integration in 2013 and the Asean Economic Community in 2015. Full liberalisation of banking, which Asean leaders acknowledge is a strategic economic sector, therefore means a slower pace will be required. This will eventually come in 2020, although the Bank of Thailand is looking at perhaps bringing this timeline forward.

Despite concerns common to sovereign countries about surrendering control to a supranational bloc, and the missed or pushed-back deadlines for some of these reforms, the argument for economic integration remains a powerful one in the eyes of many leaders and economists. In particular, for a region with a recent history of conservative banking regulators and the fear of capital flight – caused by the memories of the 1997 Asian financial crisis – integration could lead to a more stable system and a lower cost of finance.

Also, I think that more regional integration would afford countries a wider range of instruments and financial assets to obtain insurance against shocks and risk management opportunities. The Asean-listed stocks will further this goal by allowing trades via an electronic platform, meaning that in participating countries, brokers can directly access stocks on the bourses of others, removing the need to go through a local broker. That means a reduction in fees for investors, and therefore for listed companies a larger pool of potential shareholders.

I believe that the first links will be established between Malaysia, Thailand and Singapore in 2012, and then add stocks from bourses in Vietnam, Indonesia and the Philippines. Eventually, greater integration could help Asean countries gain the attention of international investors. Separately, these smaller countries attract less attention because of their size than Japan, which has the world’s third-largest economy, and the populous giants India and China.

The technological underpinning of the Asean-listed stock exchange is a system called the Asean Common Exchange gateway. Brokers in one country will place an order on their home exchange, and the trade will be executed in the other country, which will be executed as a service by a broker there.

Looking ahead, the next step toward financial integration will come in 2013, with the concept of Asean Qualified Banks. While the rules were still under discussion as of early 2012, the idea is that banks that meet certain standards will be able to operate in any Asean member state. Fuller details are expected to become available later this year, but this is a case of government trailing the private sector, as many of the region’s large banks have already expanded to other Asean countries: CIMB Group and Maybank of Malaysia, Singapore’s United Overseas Bank, and Thailand’s Bangkok Bank are just a few examples. Although the standards have not been set, there is speculation that just a few banks in Asean will meet the potential criteria.

The big change in 2015 will be the implementation of the Asean Economic Community, which will represent a leap towards full economic integration, with some exceptions such as banking. According to the AEC Blueprint, that will require the free flow of goods, services, investment, capital and skilled labour – basically the four pillars of economic integration under the AEC.

I reckon that in the years ahead, the AEC will transform the Southeast Asian region into a single market and production base. Thai people and businesses now need to look beyond our own domestic market and see the broader Asean market with over 580 million consumers.